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Monday, February 07, 2011

Colgate-Palmolive - Part 2

Colgate is very big in toothpaste. This is something that is well-known but yet underrated. When I tell people Darlie also belongs to Colgate, most people are pleasantly surprised.

But what really surprised me was when I went down to my local supermarket and saw that the toothpaste segment basically sells just these 2 brands. I mean, Colgate and Darlie dominate the shelves! There are a few tubes of Sensodyne (by GSK), which is now competing with Colgate's own Sensitive Relief Pro. And there is kids' toothpaste. That's it. The rest is all Colgate.

Isn't this co. amazing? This firm basically dictate what human beings should use when they brush their teeth.

Why can Colgate exert such dominance?

1. Distribution

Colgate is obviously very strong here, it is already distributing toothpaste in the most remote part of the world when people are talking about BRICs. Next time you visit some of our neighbours like Myanmar or Cambodia, take note of the brand of toothpaste they use!

2. Taste

Again, I think people simply don't like new tastes when brushing their teeth, hence they will keep buying the same brand unless prices are raised by 300% or something.

3. Brand

This is something we talked about countless times. When asked to think about toothpaste, what comes to mind? Colgate's mindshare simply dominates.

So there is little threat that things will change in the next few years. Colgate will continue to dominate the markets and grow. Given its high market share in a few regions, it's OPM is also exceptionally high in these regions, at 30% or more. So as these region gets bigger we can expect marginal improvement in the firm's overall blended OPM. But not much, maybe from 25% to 28% or so, over a few years.

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